ANTICIPATE Social Security and Your Retirement SAVING : INVESTING : PLANNING

Transcription

1 ANTICIPATE Social Security and Your Retirement SAVING : INVESTING : PLANNING

2 About this seminar Presentation > Provides comprehensive education > Includes action steps > Provides opportunity to develop personalized financial plan Brochure > Reinforces major presentation points > Serves as future resource Seminar evaluation form > Provides opportunity for feedback 2

3 Table of contents 1 The cost of retirement 2 Social Security benefits 3 Bridging the income gap 4 Action steps SAVING : INVESTING : PLANNING 3

4 1 The cost of retirement SAVING : INVESTING : PLANNING 4

5 The cost of retirement Expectation vs. reality How do you envision your transition into retirement? 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 48% 19% Late retirement 86% Work in retirement 48% 14% 15% Current workers - Expectation Current Retirees - Reality Depend on retirement plans 25% 52% Savings to last in retirement Source: BlackRock s Annual Retirement Survey,

6 The cost of retirement Calculating the cost of retirement Current gross income $40,000 $60,000 $80,000 $100,000 Plan contribution (6%) - $2,400-3,600 - $4,800 - $6,000 $37,600 $56,400 $75,200 $94,000 Marginal tax rate* - 15% - 15% - 25% - 25% Net income $31,960 $47,940 $56,400 $70,500-20% - $6,392 - $9,588 - $11,280 - $14,100 Income needed in retirement $25,568 $38,352 $45,120 $56,400 *Refer to the marginal tax bracket table in the workbook to calculate your retirement income needs based on your actual current income. This chart is a hypothetical estimate of income needed in retirement, factoring in the current marginal tax rate for a married couple filing jointly. 6

7 The cost of retirement When will you need the most income in retirement? Annual spending Age Age Age 75+ % change Apparel & services $ 1,571 $ 1,186 $ % Entertainment 2,683 2,341 1,374-48% Food & alcohol 6,470 5,540 4,057-37% Healthcare 3,859 4,922 4, % Housing 16,673 14,420 11,421-31% Transportation 8,111 6,086 4,288-47% Personal insurance & pensions 6,403 2, % Miscellaneous 5,130 4,291 3,931-23% Total expenditures $50,900 $41,434 $31,529-38% Total expenditures for those age 75+ are 38% less than those aged Source: U.S Department of Labor, Bureau of Labor Statistics, Consumer Expenditure Survey, September,

8 The cost of retirement Sources of retirement income (Balance) 14% Savings 0% 20% - 60% Retirement/pension plan 27% Post-retirement wage 15% 40% - 25% Social security This is just one sample scenario from households with annual incomes of $34,750. Your sources of retirement income will vary depending on your individual situation. Source: Social Security Administration, Fast Facts and Figures About Social Security, 2011 (latest available data). May not add to 100% due to rounding. 8

9 2 Social Security benefits SAVING : INVESTING : PLANNING 9

10 Social Security benefits Did you know? > In 1940, Ida Fuller was the first recipient of Social Security retirement benefits > Ida lived until age 100 and, although she only contributed a total of $24.75 to Social Security, she received more than $22,888 in payments > Ida still supplemented her Social Security check with an apartment rental and stock income 10

11 Social Security benefits The basics > It is insurance, not charity or savings > Eligibility 40 credits of working service (equal to about 10 years) Depending on birth year, full retirement age varies from 65 to 67 Year of Birth Full Retirement Age (FRA) 1937 or earlier months per year after 1937 until months per year after 1954 until and later 67 11

12 Social Security benefits Average annual Social Security benefits Annual earnings vs. benefits for workers retiring at age 65 Past earnings Benefits Maximum-earner $27,762 $101,320 High-earner $23,255 $68,800 Mid-earner $17,534 Low-earner $19,350 $10,648 SAVING : INVESTING : PLANNING $43,000 $17,114 Difference in benefits paid to highest and lowest earners Source: SocialSecurity.gov. The 2012 Annual Report of The Board of Trustees of the Federal Old-age And Survivors Insurance and Federal Disability Insurance Trust Funds. 12

13 Social Security benefits Estimating your benefits Access the Social Security online calculator SAVING : INVESTING : PLANNING Source: SocialSecurity.gov. 13

14 Social Security benefits When to start taking benefits? There s no one size fits all it depends on your circumstances > Your current cash needs > Your health and family longevity > Whether you plan to work in retirement > Your other sources of retirement income > Your anticipated future financial needs and obligations > The amount of your future Social Security benefit SAVING : INVESTING : PLANNING 14

15 Social Security benefits Options for collecting benefits Collect early (age 62 - FRA) Collect at FRA (65 67) Collect after FRA (FRA 70) SAVING : INVESTING : PLANNING The options for collecting are not intended to encourage a particular choice. Analyze your individual situation and seek guidance from a financial advisor. 15

16 Social Security benefits 1. Collect early Reasons > Illness or unemployment > You expect to have a short life expectancy > You need the money immediately to make ends meet > Money is not a concern, and you just prefer to stop working Pros > You would collect income over a longer period of time Cons > Your monthly Social Security benefit amount would decrease > If you continue working, you will be penalized for earnings over the maximum amount allowed for working beneficiaries 16

17 Social Security benefits 1. Collect early Social Security benefits will be reduced by as much as 30% Year of Birth Full Retirement Age If collected at age 62, your $1,000 benefit will be reduced to: That s a percentage decline of: $750-25% and 2 months $741-26% and 4 months $733-27% and 6 months $725-27% and 8 months $716-28% and 10 months $708-29% 1960 and later 67 $700-30% *Percentages are approximate due to rounding. Source: Retirement Planner: Benefits By Year Of Birth. Social Security Administration. SocialSecurity.gov. 17

18 Social Security benefits 2. Collect at Full Retirement Age (FRA) Reasons > You can afford to wait until FRA to begin receiving benefits, and the monthly benefit amount at FRA will meet your needs > You are in good health and expect to live long past your FRA Pros > You receive 100% of your Social Security benefits > If you wait to collect and continue working until FRA, you add more earnings to your work record 18

19 Social Security benefits 3. Collect after Full Retirement Age (FRA) Reasons > You need the maximum monthly benefit to meet your expenses > You are in good health and expect to live long past your FRA Pros > Your benefit payments would increase by up to 8% a year The yearly rate of increase depends on your year of birth Increases end after you reach age 70, even if you continue to delay taking benefits Source: Social Security Administration; ssa.gov. 19

20 Social Security benefits 3. Collect after Full Retirement Age (FRA) Year of Birth Yearly Rate of Increase % % % % 1943 or later +8.0% This Delayed Retirement Credit (DRC) is in addition to the Cost of Living Adjustment. Source: Social Security Administration; ssa.gov. 20

21 Social Security benefits Finding the break-even point Longevity plays a key role in determining which option is best Age Begin at Age 62 Begin at FRA of 66 Begin at Age $21,600 $0 $0 67 $129,600 $57,600 $0 70 $194,400 $144,000 $38, $302,400 $288,000 $228, $367,200 $374,400 Breakeven $342, $410,400 $432,000 $380, $453,600 $489,600 $494,208 Breakeven This is a hypothetical example that assumes a monthly benefit of $2,400 at FRA and no cost of living adjustment. This break-even point analysis is not intended to either encourage or discourage you to claim SS benefits at any age. It is intended to provide you hypothetical information to help you with your retirement planning. Analyze your individual situation, and seek guidance from a financial advisor. 21

22 Social Security benefits Single filer > Qualifies for social security benefits solely based on work history > Life expectancy is the best strategy for determining when to file Female Male Average life expectancy Files at age 62 Files at age 70 Average life expectancy Files at age 62 Files at age $113,352 $105, $ 98,423 $ 74, $134,305 $150, $122,295 $124, $150,911 $186, $141,434 $165,950 This is a hypothetical example that shows how a three-year difference in life expectancies between men and women changes the overall strategy for filing. It assumes a monthly benefit of $1,000 at FRA. Source: cbsnews.com. How Single Filers Can Get the Most from Social Security, August

23 Social Security benefits Spousal benefits > Spouse can claim the greater of his/her own benefit or 50% of their spouse s benefit at FRA > Spouse cannot collect on spouse s record until the primary files for benefits (the primary can file and elect to suspend benefits) > Spousal benefit is reduced up to 35% if claimed prior to the recipient s FRA > A divorced spouse can apply for benefits on a worker's record if he/she: Was married to worker for at least 10 years Divorced for at least two years Is at least age 62 Is unmarried Is not eligible for equal or higher benefits on his/her own or someone else's record Source: Social Security Administration. SSA.gov.,

24 Social Security benefits Maximizing spousal benefits Combine early and delayed benefits to generate more income Early Age (FRA) Lower earner Higher earner Collect individual benefits 75% of Primary Insurance Amount (PIA) Collect spousal benefits Collect spousal benefits Collect individual benefits Delayed Age (FRA) Lower earner Higher earner Collect spousal benefits 50% of higher earner s PIA minus lower earner s PIA File and Suspend Collect individual benefits 132% of PIA Assumes spouses are the same age at FRA. 24

25 Social Security benefits Survivor benefits > At FRA, widow(er)s can keep their own benefit or switch to the deceased spouse s benefit, if higher Widow/widower Age (FRA) Collect survivor benefits 71.5% of deceased spouse s PIA Collect individual benefits 132% of PIA > Widow(er)s who remarry will not lose collected benefits Rules are complex and may vary. 25

26 Social Security benefits The impact of taxation on retirement income Depending on how much you earn, you could pay tax on up to 85% of your Social Security benefits! Single or Head of Household Combined income* $25,000 or less Married Filing Joint Combined income* $32,000 or less $25,000 - $34,000 up to 50% taxable $32,000 - $44,000 up to 50% taxable Above $34,000 up to 85% taxable Above $44,000 up to 85% taxable * Combined income takes into account adjusted gross income, nontaxable interest, and half of your Social Security benefit. Source: OASDI & HI Contributions. Fast Facts & Figures About Social Security, SSA.gov. Retrieved March

27 3 Bridging the income gap SAVING : INVESTING : PLANNING 27

28 Bridging the income gap Help increase future benefits Essential Income Planning 3 Legacy Generational planning Non-essential income need Travel, leisure, hobbies 2 Variable income Mutual funds, annuities, MM, CDs, Managed accounts Essential income need Food, Shelter, Clothing, Transportation, Healthcare 1 Income designed to last a lifetime Pension, Social Security, GMWB, Annuitization, Other 28

29 Bridging the income gap Case study > Objective Income for life for Dave (64) and Julie (62) > Retirement nest egg of $800,000 $500,000 Dave s 401(k) $300,000 Julie s 403(b) $ 75,000 IRAs $ 25,000 CDs > Monthly income $2,650 combined pensions? Social Security > Monthly essential expenses 5,000 > Income gap? monthly 29

30 Bridging the income gap The Social Security gap $5,000 Essential Income need $2,650 Pension Age Social Security benefits Gap 62 $1462 $890 FRA $1950 $ $2574 $0 30

31 Essential income planning An annuity with a lifetime guaranteed minimum withdrawal could fill the income gap $2,650 Pensions Essential expenses of $5,000 monthly $1,950 Social Security $4,600 monthly income $100,000 annuity purchase $700,000 $400 monthly shortfall Monthly lifetime income Retirement Savings SAVING : INVESTING : PLANNING This hypothetical example is for illustrative purposes only. Annuity costs, fees, payouts, limitations and restrictions vary according to contract terms. Guarantees are backed by the claims-paying ability of the issuing insurance company. 31

32 Bridging the income gap Working in retirement You can still receive Social Security benefits If you are You can earn up to * After which you ll lose Younger than FRA $15,120 $1 for every $2 you earn over limit In the year you reach FRA $40,080 in the month you reach FRA and anytime thereafter No limit No penalty $1 for every $3 you earn over limit *Data is for Source: Social Security Administration; ssa.gov. 32

33 4 Action steps

34 Action steps 1 Consider your retirement expectations 2 Assess your financial situation 3 Work with a financial advisor 34

35 Action steps Consider your expectations for retirement > Will you continue to work? > How is your health? > Is there a history/expectation of longevity? > If you are married, what is the age difference between you and your spouse? > Whose benefits will your spouse collect? 35

36 Action steps Assess your financial situation Some of the benefits of financial planning are: > Identifies the five major risks in retirement > Provides a big picture view of your current financial situation > Helps identify your financial goals and objectives > Allows you to understand the impact of your decisions > Offers you a course of action needed to achieve your financial goals > Ensures your goals stay on track, if reviewed regularly > Assists in identifying income gaps SAVING : INVESTING : PLANNING 36

37 The information in this presentation is general in nature and may be subject to change. Neither VALIC nor its financial advisors or other representatives give legal or tax advice. Applicable laws and regulations are complex and subject to change. Any tax statements in this material are not intended to suggest the avoidance of U.S. federal, state or local tax penalties. For legal or tax advice concerning your situation, consult your attorney or professional tax advisor. Securities and investment advisory services are offered by VALIC Financial Advisors, Inc., member FINRA and an SEC-registered investment advisor. VALIC represents The Variable Annuity Life Insurance Company and its subsidiaries, VALIC Financial Advisors, Inc. and VALIC Retirement Services Company. SAVING : INVESTING : PLANNING Copyright The Variable Annuity Life Insurance Company. All rights reserved. VALIC.com VC25763 (10/2013) J91472 EE 37

38 THANK YOU Social Security and Your Retirement SAVING : INVESTING : PLANNING